System and method for algorithmic trading strategies

• US 7,747,508 B1
• Filed: 06/07/2005
• Issued: 06/29/2010
• Est. Priority Date: 06/07/2004
• Status: Active Grant

• Current Assignee: Goldman Sachs & Co. LLC (Goldman Sachs Group Incorporated)
• Original Assignee: Goldman Sachs & Company (Goldman Sachs Group Incorporated)
• Inventors: Silverman, Andrew F.
• Primary Examiner(s): Akintola, Olabode
• Application Number:
  US11/146,632
• Time in Patent Office: 1,848 Days
• Field of Search: 705/37, 705/36.R, 705/35
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

Various embodiments of the present invention are directed to systems and methods for algorithmic trading strategies and/or systems and methods for use in executing an order directed to a security traded in a market. More particularly, one embodiment of the present invention relates to a method implemented by a programmed computer system for use in executing an order directed to a security traded in a market, comprising: calculating a plurality of expected market impacts associated with execution of the order over a plurality of different time periods; calculating a plurality of expected price risks associated with execution of the order over the plurality of different time periods; calculating a plurality of expected total costs associated with execution of the order over the plurality of different time periods, wherein the plurality of expected total costs are calculated using the plurality of expected market impacts and the plurality of expected price risks; and trading the security via execution of the order over a time period at which the expected total cost is optimal (e.g., minimized).

Claims

1. A method implemented by a programmed computer system for use in executing an order directed to a security traded in a market, comprising:

obtaining, with the computer system, a value x representing a percentage of market volume associated with the security;

calculating, with the computer system, a plurality of expected market impacts associated with execution of the order over a plurality of different time periods;

calculating, with the computer system, a plurality of expected price risks associated with execution of the order over the plurality of different time periods;

calculating, with the computer system, a plurality of expected total costs associated with execution of the order over the plurality of different time periods, wherein the plurality of expected total costs are calculated using the plurality of expected market impacts and the plurality of expected price risks; and

trading the security via execution of the order by at least a first component and a second component in tandem over a time period at which the calculated expected total cost is minimized for the value x,

wherein the first component adjusts trade parameters to maximize spread capture, and the second component determines pockets of liquidity at optimal price points.

2. The method of claim 1, further comprising trading the security with the computer system.

3. The method of claim 1, wherein the expected total costs are calculated based upon at least one characteristic selected from the group consisting of:

order size;

spread;

market capitalization;

listing venue;

volatility; and

price level.

4. The method of claim 1, further comprising obtaining, with the computer system, a value y indicative of a risk aversion of a user.

5. The method of claim 4, wherein the security is traded via execution of the order over a time period at which the calculated expected total cost is minimized for the value x and for the value y.

6. A system for executing an order directed to a security traded in a market, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the processor issues instructions to;

obtain a value x representing a percentage of market volume associated with the security;

calculate a plurality of expected market impacts associated with execution of the order over a plurality of different time periods;

calculate a plurality of expected price risks associated with execution of the order over the plurality of different time periods;

calculate a plurality of expected total costs associated with execution of the order over the plurality of different time periods, wherein the plurality of expected total costs are calculated using the plurality of expected market impacts and the plurality of expected price risks; and

trade the security via execution of the order by at least a first component and a second component in tandem over a time period at which the calculated expected total cost is minimized for the value x,

wherein the first component adjusts trade parameters to maximize spread capture, and the second component determines pockets of liquidity at optimal price points.

7. The system of claim 6, wherein the processor issues further instructions to trade the security with the computer system.

8. The system of claim 6, wherein the expected total costs are calculated based upon at least one characteristic selected from the group consisting of:

order size;

spread;

market capitalization;

listing venue;

volatility; and

price level.

9. The system of claim 6, wherein the processor issues further instructions to obtain a value y indicative of a risk aversion of a user.

10. The system of claim 6, wherein the security is traded via execution of the order over a time period at which the calculated expected total cost is minimized for the value x and for the value y.